There’s Never Just One Stock Market

Check out Josh Brown’s post from earlier today on the stealth bear market that hit Wall Street in 2015-16. He quotes Andrew Adams as saying that if you had invested in the 10 largest stocks in 2015, you would have been up 20% on the year, yet the other 490 stocks were down 3%.

The point is that we often talk about the S&P 500 as if it’s one giant stock. In reality, there are many currents and cross-currents running just below the surface. The index only tells us an average, and it’s a size weighted average at that.

One good way to divide the market is by looking at high beta stocks compared with low vol stocks. Look at this chart from the last 20 months:

I’ll tell you that Low Vol is the blue line, which seems obvious since it’s so much less volatile. The red line is High Beta. Back to Josh’s point, we already had a nasty bear market. Sure, not everybody experienced it, but for those who did, it was rather unpleasant.

The Trump Rally was all about the red line, but the blue line started to perk up in February.